UK economy: Charles and Diana – William and Kate

After the momentous occassion of yesterday’s royal wedding it is interesting to observe the economic conditions in the UK economy today to that of the last royal wedding 30 years ago when Charles married Diana.

1981 – the UK economy was in recession – have a look at the following indicators:
– unemployment was 10% = 2.65million people out of work
– Inflation 11.9%
– GDP -1.2%

Today – the economy is in much the same state:
– unemployment is 7.8% = 2.48 million people out of work
– Inflation 5.5%
– GDP 0%

So how has the approach to such dire conditions altered in 30 years? Not much according to Andrew Webb of the Financial Times.

In 1981 Chancellor of the Exchequer Geoffrey Howe proposed deep public spending cuts and tax increases in his budget. Today Chancellor George Osborne has made similar decisions and as like 1981 people have taken to the streets in protest. These decisions may reduce the budget deficit but it does run the risk of stifling demand. Furthermore with the forecast cut in the public sector unemployment is set to increase and ultimately consumer spending drop. Accross the Atlantic in 1981 Reagan was doing the opposite – cutting taxes in oder to stimulate demand.

The royal wedding might have felt like a welcome distraction from the gloom of 1981, and the year turned out to be the start of one of the longest equity bull runs we have known. The FTSE All Share began 1981 a shade under 300 and barely paused for breath until 2000 when it was worth ten times more. Apart from the obvious and short-lived feel good factor of a royal wedding, there is of course no suggestion that it has any impact on economics or the markets. Nevertheless, investors are hoping that the big day also coincides with the start of another long bull market as it did in 1981.

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